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Thursday, November 1, 2012

LOLC Group companies rated ‘A-’

The LOLC Group said yesterday that the holding company and its subsidiaries were independently rated by ICRA Lanka Ltd since July this year. ICRA Lanka Ltd is a whollyowned subsidiary of ICRA Ltd, which is an associate of Moody’s Investors Service.

LOLC PLC, Lanka ORIX Finance PLC and Commercial Leasing & Finance Ltd were assigned an Issuer Rating of ‘[SL] A-‘with stable outlook by ICRA Lanka Ltd from July to September this year.

Issuing a statement, LOLC’s Group Managing Director/CEO, Kapila Jayawardena said, "Since July this year, we have been rated independently by ICRA Lanka Ltd, and therefore have not consulted any other rating agency for issuer ratings".

Excerpts from ICRA’s ratings reviews follows:

ICRA Lanka Limited, a wholly owned subsidiary of ICRA Ltd., an associate of Moody’s Investors Service, has assigned an Issuer rating of ‘[SL] A-’ with stable outlook to Lanka Orix Leasing Company PLC. The rating indicates adequate-credit-quality and the rated entity carries average credit risk. The rating in Sri Lanka is assigned on an eight-point scale developed specifically for the country, and ranges from ‘[SL] AAA’ to ‘[SL] D’. This rating scale ranks the relative default risk associated with issuers in Sri Lanka.

The rating factors the LOLC Group’s long track record of profitable operations, its position as the market leader in the Sri Lankan leasing business market, professional and experienced management team, adequate risk management systems with strong retail franchise. The rating also takes into account the committed support and oversight from its largest investor–ORIX Corporation of Japan (rated Baa2 with stable outlook by Moody’s) which has a 30% stake in the entity. ICRA has taken note of the ongoing restructuring exercise wherein it will transition into a holding company and the finance businesses will be carried out in its subsidiaries, leading to moderation of the standalone earnings profile of the holding company (HoldCo) as the existing lending portfolio runs down.

However, given the significant operational and financial linkages with the subsidiaries (especially pertaining to financial services), ICRA Lanka has taken a consolidated rating view of the HoldCo and the key asset financing subsidiaries. The view is corroborated by the service level agreements between LOLC and its subsidiaries to upstream cash flows. LOLC’s standalone earnings would mainly comprise of shared services fees and dividends from subsidiaries and investment gains. ICRA has also taken note of the management’s commitment to de-leverage the HoldCo from the current gearing of 2x as on March 2012 to 1.2x by March 2013 by reducing intra-group exposures and the run-down of its lending book. Maintaining stable cash flows and a deleveraging of the HoldCo would remain key sensitivities.Lanka ORIX Finance PLC

ICRA Lanka Limited, a wholly owned subsidiary of ICRA Ltd., an associate of Moody’s Investors Service, has assigned an Issuer rating of ‘[SL] A-’ (pronounced SL A minus) with stable outlook to Lanka OrixFinance PLC. The rating indicates adequate-credit-quality and the rated entity carries average credit risk. The rating in Sri Lanka is assigned on an eight-point scale developed specifically for the country, and ranges from ‘[SL] AAA’ to ‘[SL] D’. This rating scale ranks the relative default risk associated with issuers in Sri Lanka.

The rating factors LOFC’s close operational and financial linkages with the LOLC Group in its position as the flagship subsidiary of Lanka ORIX Leasing Company PLC (HoldCo), which is rated [SL]A-/stable by ICRA Lanka. Given this, ICRA Lanka has taken a consolidated rating view of the HoldCo and its key asset financing subsidiaries. The rating also factors LOFC’s robust franchise, healthy competitive position given its superior market share and a professional and experienced management team.

ICRA has taken note of the significant gaps in LOFC’s asset-liability maturity profile, particularly in the short term buckets, arising from the short term nature of funding, both retail deposits and institutional funds. While LOFC’s refinancing ability remains good through retail and institutional franchise, ICRA Lanka expects the company to raise longer-tenure funds to progressively address this gap. LOFC’s financial leverage has increased as a result of rapid portfolio growth despite capital infusion from the Parent. However, lower incremental portfolio growth, stable internal accruals are expected to support capitalization levels. The core profitability has been improving in the past few years backed by higher interest spreads, while operating costs have reduced because of economies of scale. Incrementally, interest spreads could shrink marginally in light of the prevailing interest rate environment; nonetheless ICRA Lanka expects profitability to remain steady provided the level of credit costs are kept under control.

Commercial Leasing & Finance Ltd

ICRA Lanka Limited, a wholly owned subsidiary of ICRA Ltd., an associate of Moody’s Investors Service, has assigned an Issuer rating of ‘[SL] A-’ (pronounced SL A minus) with stable outlook to Commercial Leasing and Finance Limited (CLC or the Company). The rating indicates adequate-credit-quality and the rated entity carries average credit risk. The rating in Sri Lanka is assigned on an eight-point scale developed specifically for the country, and ranges from ‘[SL] AAA’ to ‘[SL] D’. This rating scale ranks the relative default risk associated with issuers in Sri Lanka.

The rating factors the operational and financial linkages with the LOLC Group in its position as a strategic finance company of Lanka ORIX Leasing Company PLC (HoldCo), which is rated [SL]A-/stable by ICRA Lanka. Given this, ICRA Lanka has taken a consolidated rating view of the HoldCo and its key asset financing subsidiaries considering the HoldCo or the Group could rely on the key financial services subsidiaries for support. The rating takes into account the demonstrated track record of operating profitably in the retail finance segment, well established franchise combined with a professional and experienced management team and comfortable capitalization levels. The rating draws comfort from the good overall asset quality maintained despite the recent increase in slippages in its factoring book and the current adequate liquidity position supported by limited asset liability mismatch.

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Quotes By Warren Buffet

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